TORONTO — As thousands of Toronto commuters found themselves stranded during the morning rush hour Monday following a massive subway disruption, Uber's surge pricing kicked into effect.
Under surge-pricing, also known as dynamic pricing, the ride-hailing service uses an algorithm to lure more drivers to areas where demand is particularly high by increasing the rates in those areas.
The practice has incited controversy among some users who have called it "price gouging."
Some tweeted that Uber was charging up to four times the usual rate in some parts of the city.
But Uber spokeswoman Susie Heath says that as soon as the company became aware of the transit shutdown, it capped its dynamic pricing at three times the normal rate.
Heath says Uber always communicates to users that surge pricing is in effect.
"Dynamic pricing solves for the perennial challenge of never being able to get a ride on New Year's Eve, after a major sporting event or during bad weather," said Heath.
"Because Uber doesn't employ drivers, every driver has a choice of how he or she spends his or her time. Dynamic pricing helps bring demand and supply into line, when necessary, by incentivizing more drivers to come onto the platform. Once demand falls or supply increases sufficiently, prices quickly go back to normal."
Ian Lee, an assistant professor at Carleton's Sprott School of Business, says he's surprised at how some consumers have reacted to Uber's surge pricing.
"It's simply good old-fashioned supply and demand," said Lee. "There's no evil person sitting behind a computer screen trying to exploit people. It's purely using an algorithm in the software ... that says if there's an imbalance between the demand for Uber taxes and supply of Uber taxis, the software prices you upwards."
Lee says a number of other industries — including airlines, hotels and car rental companies — also use dynamic pricing but are simply less transparent about it.
"When you fly to Europe, you pay a lot more going in the summer time than you do going in the winter," he said.
